For Those Who Calculate Their Net Worth

[disneysteve]

If the future rates are higher, withdraw from the Roth. If lower, from the 401k type investment.

That doesn't work. The 401k has a required annual distribution. You have to take the money out (and pay the taxes) whether you want to or not. Not so for the Roth.

[jpg7n16]

I've read that only about half of all workers in the US are covered by a 401k-type plan. Despite all of the talk about them, they aren't as common as most people think.

I hadn't heard that. And the vast majority of people I know have some sort of 401k or 403b plan available to them. The only people I've ever met with some pension type plan either work as teachers, or for the government.

And then you have a pension plan - which will be taxed too.

But it seems like it's around 56% of the population. And of those people whose firm offers a retirement plan, 78.8% offer 401k type plans (56/71)

http://www.bls.gov/ncs/ebs/benefits/2009/ebbl0044.pdf

You're right, I thought they were much more common.

That doesn't work. The 401k has a required annual distribution. You have to take the money out (and pay the taxes) whether you want to or not. Not so for the Roth.

You only have to take out a minimal withdrawal - which will have standard/itemized deductions and personal exemptions taken against it. So RMDs are unlikely to put you into the higher brackets - especially if your money is split 50/50 between 401k and Roth accounts.

For a 2 million dollar portfolio split 50/50 for someone aged 70 married, you'd have to withdraw $36,496. (Calculated here: Kiplinger.com )

Deduct 11,400 and 3650 *2 = 18,700 (standard deduction and personal exemptions) and you're left with a whopping income of $17,796. Which puts you barely into the 15% bracket. Total tax burden: $1,831.90. And that's for withdrawing off $2 million. (4% is 80,000)

So over your 401k withdrawal only, you'd have an effective tax rate of 5%. And of your entire withdrawal, a mere 2.3%.

So while I understand the RMD is present, it is unlikely to change your overall withdrawal strategy - if you have split your contributions 50/50 and invested both accounts in the same funds.

[disneysteve]

A 50/50 split is possible only if you earn no more than $67,000. Beyond that, you couldn't be putting away 15% and split it 50/50 due to the pathetically low contribution limit for Roth accounts.

Seeing as nearly half of workers don't have access to a 401k, I really wish the government would hike the Roth limits to equal the 401k limits, at least for folks who don't have a 401k available to them. I'd love to be stashing $16,500/year in the Roth rather than $5,000. This is the only reason I'm looking forward to turning 50 in a few years - we'll be eligible to up our contributions by $1,000.

[jpg7n16]

A 50/50 split is possible only if you earn no more than $67,000. Beyond that, you couldn't be putting away 15% and split it 50/50 due to the pathetically low contribution limit for Roth accounts.

If you're married, you could earn up to $133,333 combined (5k + 5k Roths, 10k 401k)

If you make more than that you'd run out of room anyways, and you'd get as close to 50/50 as you can. Max the Roth and equal in 401k, and then use 401k for the excess. Then brokerage for the excess beyond 21,500.

That's the best you could hope for.

But a single income family, at 100k filing joint, could still do 15-20% in a 50/50 split.

Seeing as nearly half of workers don't have access to a 401k, I really wish the government would hike the Roth limits to equal the 401k limits, at least for folks who don't have a 401k available to them. I'd love to be stashing $16,500/year in the Roth rather than $5,000. This is the only reason I'm looking forward to turning 50 in a few years - we'll be eligible to up our contributions by $1,000.

I think that's a great idea to submit to Congress actually.

They already have a different income limit for an earner not covered by a qualified plan, why not give a different contribution limit too? They could call it the DisneySteve IRA provision. If you're not covered by a qualified plan at work, you can contribute and deduct up to $16,500 - in addition to normal IRA limits.

Then we'd all be on the same playing field.

I wonder if people could abuse that somehow. Maybe that's why they haven't done it so far. I'd have to think that one through.

[yellow heel]

I haven't given much thought into the tax rate at retirement. I was too busy saving for it . I also have no idea how inflation will play a role (well I kinda do if I just use a simple 3% inflation rate but you never know just like tax).

So until then I will try not to worry about what I can't control but to try to control what I have control right now. Like spending (less is better) and saving (more is better).

[Snodog]

Of all the retirees I've talked to most pay little or even no tax.

Many states don't tax retirement accounts and you pay no FICA or medicare taxes.

According to Turbotax a couple recieving $24k in Social Security and withdrawing $18k from retirement accounts would pay not a cent in federal tax.

Add in any Roth withdrawals and you can live quite well paying no tax.

That is not to say they won't go and change everything in 20 years.

Regardless I count on paying 10%. If I end up paying 20% my retirement accounts would have done so well that I can afford it or the country is in such bad shape that it is not worth living anyway.